26 April 2024 | By INDIE
Have you ever come across the term average monthly balance (AMB) in your bank statements or savings account details? While it might seem like just another technical term, comprehending its impact can unlock a treasure trove of financial benefits. Let's delve deeper into what an AMB is, explore its associated charges, and discover the hidden advantages of maintaining a healthy AMB in your savings account.
The average monthly balance (AMB) refers to the average balance you need to maintain in your savings account throughout a calendar month. The banks calculate this by summing up your daily closing balances in a month and dividing the result by the day count of the month. This figure has a crucial role in determining your eligibility for various bank services and associated charges.
There are a lot of banks that impose a fine, termed AMB charges when your average monthly balance falls below a predefined minimum threshold set by the bank. These charges can vary from bank to bank and across account types and can have a significant impact on your savings. Hence, to protect yourself from the burden of maintaining a minimum balance, consider opening a zero balance savings account.
Avoiding AMB charges has its benefits and maintaining a healthy AMB goes beyond simply saving yourself from penalties. Here are some compelling reasons to prioritize an AMB:
● Augments Financial Discipline: Maintaining an AMB encourages a responsible saving habit. The need to consistently maintain a specific amount in your account motivates you to keep track of your spending and helps you avoid unnecessary withdrawals. This fosters a mindset of financial planning and helps you prioritize saving towards your goals.
● Unlock Exclusive Banking Privileges: Maintaining a healthy AMB helps you enjoy free/discounted banking services (e.g., waived fees, free checks), higher interest rates on your savings, and easier access to credit (pre-approved loans, lower rates)
● Establishing a Positive Credit History: The ability to maintain your AMB plays a significant role in building your credit score. Consistency in adhering to AMB requirements exhibits responsible financial behavior and a healthy saving habit. This contributes positively to your credit score and can be beneficial while you are applying for loans, credit cards, or even renting an apartment.
● Setting up automatic transfers: You can set up standing instructions on your salary account to your savings account for a periodic transfer to ensure you consistently meet the minimum balance requirement.
● Pairing your savings account with another account: Some banks offer linked account options where maintaining a minimum balance in one account automatically waives the AMB requirement in another linked account, providing more flexibility.
● Choosing the right account: If an AMB requirement doesn't suit your current financial situation, explore other savings account options with no such requirements but potentially lower interest rates or fewer features.
● Opt for the Auto-Sweep Facility: You can opt for the auto-sweep facility on your savings account which will transfer the extra money into a fixed deposit (FD) and in case your account is short of funds, the FD can be liquidated of the amount and moved to your saving account to maintain the AMB.
It is a beneficial project for you to maintain your AMB; it can be a strategic step towards achieving your financial goals. With the various benefits that we learned about here, you can make an informed decision about whether maintaining an AMB is the right choice for your financial journey. To unlock the full potential of your finances and planning better for your future is the key to paving the way for a more secure and prosperous financial future.
